Merchant Service Charge vs Interchange Fee: What’s the Difference?

Everyone needs to get paid, and the companies that help you accept payments at your business are no different. Whether you’re running a brick-and-mortar business or an online only store, you want to ensure you can accept any and all kinds of payments that may stroll through your physical or digital door.

Everyone needs to get paid, and the companies that help you accept payments at your business are no different. Whether you’re running a brick-and-mortar business or an online only store, you want to ensure you can accept any and all kinds of payments that may stroll through your physical or digital door. 

But what is the difference between merchant service charges and interchange fees? Exactly to whom are you sending cuts of your sales? Here, we’ll take a look at what each of these fees are, how they compare to one another, and a few things you can do to ensure that you’re only paying exactly what you have to — and not a penny more!

Before we get started…

Definitions in the space of fees and charges often get thrown around very haphazardly. Interchange fees are often lumped into the same bucket as merchant service fees, swipe fees, processing fees, etc. As you work your way through this article, take a read of the definitions of both merchant service fees and interchange fees to ensure you understand what we’re referring to here.

Navigating payments and want the best rates for your business? The pros at Swipesum can help — and we offer free consultations!

Merchant Service Charges

Merchant service fees - sometimes called transaction fees - are very simply, the fees that your merchant account provider charges you. These usually take the form of a percentage of each transaction and usually come from the same bank that holds your account. There are three forms that merchant service charges take.

Flat Fee

Many banks and financial institutions offer merchant services on a flat-fee basis. Here, you’ll pay a fixed percentage of the transaction, each and every time. These generally range from between 1.5-3% depending on the type of transaction and service provider. Flat fees are great because they are the most reliable - you can plan on and budget the amount you’ll pay on each transaction. They can, however, be more expensive and you can be locked into the pricing for a contractual period. 

Interchange Model

Interchange fees are the fees that card networks charge for your acceptance of their cards. This is the other half of this article and we’ll go into more detail later. Suffice to say, many merchant account providers will mark up the interchange fee as their merchant service fee. These are a bit more opaque because the interchange fee and merchant service fee are combined. This is one of the main areas, by the way, that Swipesum can help you identify and reduce hidden fees.

Tiered Pricing

A bit more complicated, the tiered pricing model allows you to control how much of a merchant service fee you pay based upon the payment method. There are separate fees for credit, debit and other payment cards, as well as different amounts for how you accept the card. Was it present or online? Swiped, dipped or tapped? Tiered pricing works best for large businesses who know they’ll accept a whole host of different types of payments in different ways and can negotiate with the merchant service provider over the fees. It tends to be expensive and confusing for small businesses.

Other Merchant Service Fees

There are a whole host of other fees that are not necessarily tied to the transaction. For example, you might pay a fee for paper statements instead of digital. You may have to pay a monthly minimum, an agreed amount you’ll pay to the merchant service provider if you don’t have the minimum number of transactions. There also may simply be fixed monthly or annual “membership” style fees. 

You might also end up paying fees for batches (lots of transactions all at once), chargebacks, PIN verification, address verification and fees and charges associated with starting service with a merchant service provider.

In short, there are a lot of fees out there that merchant service providers can charge. The key is to ensure you get a firm understanding of what you’re paying and why. Swipesume is uniquely placed to help you negotiate and remove some of the fees you might find hiding on your statements.

Interchange Fees

Your customers will more than likely come into your store - whether it be digital or right on Main Street - with a payment card bearing the logo of one of the larger payment networks. These include American Express, Mastercard, Visa, Discover and Diners Club. You’ll pay a fee for your customer’s use of these networks, generally expressed as a percentage of the final sale price. Remember, these are separate and distinct fees you might pay to both your merchant account servicer (like your bank) and your payment processor or payment gateway (like PayPal or Stripe). 

Interchange fees tend to fluctuate between 1.5-3.5% with different payment networks charging different fees. American Express, for example, charges a higher fee but notes that it’s clientele tend to spend more money and be wealthier. These fees are not fixed either. Mastercard, for example, updates and changes its fees twice a year. Some merchants will also pay slightly different interchange fees than others. This is because they offer different payment structures and work with various payment processors who may lump fees together. 

Either way, interchange fees are those that the payment networks charge you for their customer’s use of the card.

Navigating Service Charges vs. Interchange Fees

This can seem like a lot to keep straight! And it is. At the end of the day, all of the fees you pay will begin to add up, and before you know it, you might be sending a whole lot more money to service providers than you originally planned. These fees are, more or less, the cost of doing business. Ideally, the profit you make from being able to accept credit and debit card payments far outweighs the cost of the fees. 

Still, you should do your due diligence to ensure you’re not paying too much. That’s where Swipesum comes in. We can help with statement consulting, vendor selection, payment optimization, chargeback security and much more. The goal here is to ensure you’re paying only what you have to. Reach out today to learn more and realize some profit you never knew you had.

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Michael Seaman

Michael Seaman

Michael Seaman is the co-founder and CEO of Swipesum. A veteran of the payments industry and former employee at one of the largest payments companies, Michael, along with his brother Stephen, has led Swipesum since its inception in 2016. Swipesum is committed to providing innovative payment solutions and exceptional service to its diverse clientele. In his free time, Michael enjoys traveling with his wife Kelsey and their three children, pole vaulting, and engaging in typical Midwestern dad activities.

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